1. Budget Work Session Presented by:
Mark Mathers, Chief Financial Officer
Mike Schroeder, Budget Director
September 25, 2018

2. Agenda Summary of Annual Budget Process (“Budget 101”)
Review of State’s K-12 Funding Process
How does WCSD assemble its budget
Review of FY18 General Fund Results
Initial Trends for FY20 Budget
Budget Process for FY20 / Update on Priority Based Budgeting
Legislative Initiatives/Issues
FY20 Budget Timeline

3. “Budget 101”, Part A State Funding Model for K-12

4. Overview of State Funding
The State determines the funding level for school districts for the upcoming biennium.
A statewide per pupil funding amount is derived based on a series of assumptions. This funding is commonly called the DSA (Distributive School Account) funding.
In addition, other State programs are funded. Some of this funding may be included in the DSA along with the per pupil funding, others are in separate budget accounts.
K-12 school districts have to compete with State departments and needs (prisons, welfare, healthcare, etc.) for General Fund funding.

5. Historical Costs of School Districts
State Funding Model
NDE uses actual expenditures for all school districts from the first year of the prior biennium
Historical Costs of School Districts
“Rollups” (progression of staff in their salary range) are typically added.
COLA’s and other inflationary factors are only sometimes added.
+ Inflation Factors
Some enrollment growth is also factored in.
+ Enrollment Growth
Based on these three factors, NDE compiles total projected expenses of all school districts

6. Per-Pupil Funding
After expenditures are compiled, District revenues outside the per pupil funding are estimated.
These revenues include 2/3 of property tax, gov’t service tax, opening fund balances, federal revenue and franchise tax.
Outside revenues are deducted from the estimated expenditures to arrive at a net expenditure.
This net expenditure is the Total Basic Support.
The Total Basic Support is divided by the estimated enrollment.
The result is the statewide Basic Support Per Pupil funding.

7. Per-Pupil Basic Support FundingFY
Projected Expenditures for all K-12 Schools
(based on historical expenses + inflation)
$3,599,692,205
Less: Outside Revenues of School Districts
(2/3 of Property Tax, GST, Federal Revenue)
(790,632,822) -
Total Basic Support provided by State
$2,809,059,383
Weighted Enrollment Projected by State
476,338 ÷
Statewide Basic Support per Pupil
$5,897

8. How Does the State Fund the DSA Account (Revenues inside the “Nevada Plan”)
This chart shows the Total Required Support, which includes Regular Basic Support, Special Ed., and CSR.
FY =
$3,143,893,185

9. Marijuana Taxes
Wholesale Tax – 15% of FMV rate set by Dept. of Taxation
Set by initiative (2016 State Question 2)
After covering Taxation’s cost of administering the program and local governments’ costs, the remainder is required to be deposited to DSA
FY18 revenues = $27.3 million versus $18.9 million budgeted
Because it is deposited to DSA, it is difficult to determine if the tax simply supplanted K-12 funding or actually increased funding.
Like other DSA revenues, any additional revenues above what is budgeted simply reduces the State’s General Fund obligation to K-12
Retail Tax – 10% of sales price
Set by statute, is in addition to Wholesale Tax
Set by statute to be deposited to State’s Rainy Day Fund
FY18 revenues = $42.5 million

10. How Do Additional DSA Revenues Affect School Funding?
Assuming that projected enrollments are accurate, any additional revenues that flow into the State like marijuana taxes or LSST sales tax just reduces the amount funded by the State General Fund.
Any Increase in Marijuana Taxes or LSST
Decrease in State General Fund Support
+ $50 million
- $50 million

11. How Do Additional DSA Revenues Affect School Funding?
The chart below shows the primary funding sources for the State’s Total Required Support of $3,143,893,185.
The chart below shows the impact of additional marijuana taxes and LSST. The pie stays the same, but the State’s General Fund amount is reduced.

12. Impact of Additional Revenues
Because the funding of K-12 is set up for the State to receive any additional revenues like LSST, we do not receive any benefit from a growing economy in Washoe County.

13. Historical Use of State General Fund For K-12 Education
As other revenues have increased, the percentage of the State’s Gen. Fund budget devoted to K-12 is decreasing.
This includes categorical grants funded by the State’s General Fund. It does not include federal grants or programs that are passed through to districts, however.

14. “Budget 101”, Part B How is WCSD’s Budget Built?

15. How Does WCSD Build Its Budget
Expenditure Budget
Staffing Allocations and Operating Cost for Schools
Support/Central Service/ Operations
Reconcilation Process
(Cost Reductions)
Enrollment Projections
Proposed
Budget
Revenue Budget
Per-Pupil Basic Support Revenues
Property Taxes
GST + Other Revenue

16. Added together, these costs comprise our “Base Budget”
Expenditure Budget
Enrollment Projections
Staffing Allocation Guidelines (WCSD)
Additional Resources for Title/At-Risk, SpEd, etc.
School-Based Staffing & Student Support
Historically, WCSD has used incremental budgeting (last year’s budget + inflation)
Moving to Priority Based Budgeting
Central Services, Operations & School Support
Added together, these costs comprise our “Base Budget”

17. General Fund Revenues $458.5 million in FY 17-18
Basic Support Guarantee per Pupil
$5,677 per pupil x 64,040 students =
363.56
million
Less Local Revenues:
Sales Tax (L.S.S.T.) $
42%
1/3 of Property Tax
35.57 8%
State Distributive School Acct. (DSA)
131.83
29%
Adjustments
4.14 1%
Total Basic Support Guarantee
79%
State's Special Appropriation
5.00
Outside Nevada Plan
2/3 of Property Tax
71.13
16%
Government Svcs. Tax/Other
23.77 5%
Total External Sources
94.90
21%
Total
458.46
Inside
Nevada Plan

18. School Districts’ Funding Dilemma
Barring additional revenues due to enrollment, we must make up any shortfall of the State’s funding model.
Funded by the
State
WCSD Cost Increases
Step Increases (+2%)
COLA’s (?)
Health Insurance (+10% in FY19)
Costs of New Schools
($3 million)
Health Insurance (+3.6% in FY18 & 4% in FY19)
The State has not funded COLA’s since FY09.

19. Review of FY18 Results

20. FY18 General Fund Results
Revenues exceeded the FY18 original budget by $1.1 million primarily due to extraordinary growth in GST (motor vehicle fees).
Compared to the FY18 original budget, and not including an amount budgeted for a potential property tax settlement, total costs not including encumbrances were $12.97 million below budget.
Deficit
Excess of Expenses (not incl. encumbrances) M
over Revenues
Encumbrances that carry over to FY19 * M
Expenses and Commitments over Revenues M
*Encumbrances effectively reduce an agency’s available fund balance, so they are shown here.

21. FY18 General Fund Results
*Other Category does not include the amount budgeted for a potential property tax settlement.

22. FY18 Results Moving Forward
In FY18, the District achieved $12.97 million of savings, or $9.95 million if you include encumbrances.
The FY19 budget incorporated $9.16 of base budget reductions and vacancy savings to reflect a reasonable amount of continued savings in these areas.
Even if we see an exact repeat of FY18-level savings in FY19, we would expect a budget deficit (shortfall) in FY19.
Both the FY18 and FY19 budgets included millions of recurring cost reductions.
Despite this, the District continues to have a structural deficit, which requires reductions in FY20 and FY21 unless we receive additional State funding or a restructuring of the Nevada Plan.

23. Fund Balance for General Fund
Based on unaudited estimates for FY18, the General Fund’s ending fund balance is estimated to be $40.9 million, or 8.9% of actual expenses.
However, because of $3 mil. in encumbrances and carry-over, the available ending fund balance will be less than $39 million.

24. Initial Trends for FY20 Budget

25. FY20 Early Budget Assumptions
Revenue Budget
LSST +5% (Decreases DSA)
Property Taxes +4%
GST +5%
Per-Pupil Basic Support - ? (Legislative year)
Enrollment Projections = Estimating Flat Growth
Budget Process to Address Ongoing Structural Deficit
Reconcilation Process =
(Continuing Structual Deficit)
Expenditure Budget
Staffing Allocations and Operating Cost for Schools = Flat
Support/Central Service/ Operations = Additional needs offset by reductions
Rollup Costs +2.1%
Medical Insurance +10%
Basis Adjustment -$2 million
New Schools +$3.1 million

26. Enrollment History
Projected enrollment forms the basis for allocations and budgeting of teacher and other school-based positions, as well as determining Basic Support revenues from the State.
For the FY19 budget, we built in a flat enrollment assumption, which is the case for the first four weeks of school.

27. Estimated Cost Increases in FY20
Item
Estimate
Covered by DSA
Known Cost Increases
Salary Rollup Cost (2.1%)
$ 8.9
Yes
Health Insurance (10% est. based on current trends)
$ 4.8
Partially
Salary Basis Adjustment (Savings)
($ 2.0) No
Net Costs of New Schools
$ 3.1
No*
Subtotal
$ 14.8
Unquantified Cost Increases*
Salary Increases (COLA’s) – still to be negotiated**
Unknown
Health Insurance Savings resulting from RFP
Partially – see above
Legislative Impacts
PERS Rate Increase
* These costs will need to be funded through a combination of growth in local revenues, increases to the per-pupil Basic Support Guarantee, and future budget reductions.
** For every 1% of COLA, the estimated cost across all bargaining units is $4.2 million.

28. Incremental Operating Costs of New Schools (in millions)
For new schools, only the incremental additional operating costs are shown. These costs include the additional administrators, office support, custodial, maintenance, library, and clinical staff based on staffing guidelines, as well as utilities costs. Certified positions such as teachers and counselors will follow students from the schools where they are currently enrolled and are not an additional cost.

29. Budget Process for FY20 Budget and Update on Priority Based Budgeting

30. FY19 Budget – Where are our costs?
Direct Instruction
(Regular Instruction, Special Programs, Vocational Programs, Co-curricular Program)
$292,464,286
School Support
(Student Support, School Administration, Instructional Staff Support)
$83,460,244
Operations & Maint.
(Operations, maintenance and student transportation)
$64,209,431
Central Services
(General Admin and Central Support)
$30,787,696
Focus of first phase of Priority Based Budgeting

31. Priority Based Budgeting Timeline
Task/Step Timeframe
Kickoff January 2018
Development of Program Inventories January - February
Identification of Results and Definitions Results – begun in April
Definitions – begun in May
Board final approval in July
Costing May - June
Department Scoring of Programs July
Department Scoring of Program Attributes August
Peer Review Scoring September - October
Final Reviews October

32. Priority Based Budgeting
Determination of Lower Priority Programs
Is the program mandated? If so, can we reduce costs?
Is there a growing demand for the service or does it reach a vulnerable population?
Can we reduce service levels rather than cut program?
Can we consolidate services or oversight to achieve efficiencies?
Can fees or grants cover the costs of providing the service?
What costs can be cut versus small allocations of positions?
Can we apply technology or identify work-arounds to reduce costs?

33. Additional Areas for Analysis
Continuation of GFOA’s Best Practices in School Budgeting
Smarter School Spending Tool – GFOA’s tool to identify potential areas of savings, supplemented with additional cost benchmarking
Take Home Vehicles – in progress
Athletic Transportation Fees – forming team for analysis
Continued critical examination of expenditures

34. Legislative Initiatives and Issues

35. Legislative Initiatives/Issues
School funding is the #1 issue of NASS.
In addition to inadequate funding, there are other issues related to the State’s funding model and funding process.
Timing – districts have little time to adjust their proposed budgets after per-pupil amounts are released
Local Control – need to increase flexibility within categorical funds
Lack of partnership between school districts and State budget office
Later this fiscal year, we will present a calculation of what our required Basic Support per-pupil amount needs to be in order to balance the General Fund budget.

36. FY20 Budget Timeline

37. GFOA Best Practices in School Budgeting
FY19-20 Budget Timeline
Sept thru Dec 2018
Board Budget Work Session (Sept 25)
Priority Based Budgeting (PBB) Scoring & Final Review. Follow up with departments (Oct-Dec)
Budget Data Collecting, Smarter School Spending & Other Analysis
Budget Forms to Schools and Departments
Jan – Mar 2019
Governor’s Recommended Budget (Jan)
Budget Data Collecting
Legislative Session Begins (Feb 4)
Summarize PBB Results
Craft Resolutions for Structural Deficit
Board Budget Work Session (Feb)
Budget Community Forums (Mar)
April - May 2019
File Tentative Budget (due April 15)
Public Hearing on Tentative Budget and Approval of Final Budget (May 28)
File Final Budget (due June 8 if not already approved)
June – July 2019
Legislative Session Ends (June 3)
Update Budget Based on Legislative Approvals
Approve Amended Final Budget June 25 (due July 3)
GFOA Best Practices in School Budgeting
PRIORITY BASED BUDGETING (PBB)
ALIGN BUDGET TO STRATEGIC PLAN
Staff Input, Board Workshops and Community Forums
ADDRESS STRUCTURAL DEFICIT 37